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Agrium shuts down for winter

Nikiski plant to close Monday in anticipation of peak demand for natural gas

Posted: Sunday, October 22, 2006

By JENNY NEYMANPeninsula Clarion

Agrium’s Nikiski fertilizer plant will shut down for the winter Monday, a move that may be a trend in future winters without a significant change in Cook Inlet’s natural gas supply and delivery situation.

The closure expected to last through March  won’t result in any of its 150 employees being laid off, said Lisa Parker, government relations manager at Agrium.

“For employment we won’t have any reduction in the work force,” she said.

Maintenance and upkeep projects will keep some workers busy this winter, and employees are encouraged to schedule vacation time during the shutdown, Parker said. The Department of Labor and Workforce Development will continue to be available to work with employees, as well.

Agrium has been warning of the shutdown since August, in anticipation of interruptions in the plant’s supply of natural gas, which Agrium uses to create its urea and ammonia products.

“It’s based on the producers that we purchase gas from,” Parker said. “They need to make sure that they have the gas to get to the utilities.”

As temperatures dip in the winter, natural gas usage rises and producers are obligated to supply gas for heating and power purposes first.

“There’s no risk to utility consumers at this time or in the immediate future,” said Bill Popp, the oil and gas liaison for the Kenai Peninsula Borough. “There’s plenty of gas to supply heating and power needs and that will always be the case as far as home and business owners getting first priority.”

Agrium’s second-priority status can mean periods of time when the Nikiski plant  one of Cook Inlet’s biggest industrial users of natural gas  doesn’t get enough to operate.

That was the case last January, when Agrium shut down for about two weeks as utility gas usage rose.

Agrium anticipates utility usage to cramp its gas supply again this winter. Rather than starting and stopping production as gas supply fluctuates, the company chose to close down, even though it has negotiated gas supply contracts that run from Nov. 1 through Oct. 31 next year.

“Based on those contracts we knew in our winter months there would be times when the producers wouldn’t be able to get the gas needed to keep those plants operational,” Parker said.

“It was something we knew, but it came about a little sooner than what we had anticipated.”

Agrium was already running at half capacity with one of its two urea plants and one of its two ammonia plants operational. At full operational capacity the Nikiski plant uses around 150,000 cubic feet of natural gas. At its reduced capacity it’s been using about 80,000 cubic feet of gas. In the last month it scaled back even further to 45,000 cubic feet of gas, according to Parker.

Parker said Agrium was hoping to make it at least until early November before shutting down for the winter, but that didn’t pan out.

Come March, utility usage of natural gas should slack off.

“Once you get into summer months, it will be easier to get the gas and restart the plant and that’s our intention,” Parker said.

But what happens when winter once again squeezes natural gas supplies?

Without a major change in Cook Inlet’s supply situation, probably the same thing.

“Again this shows how thin the delivery gas supply has become,” Popp said. “It’s not anything that’s going to change in the immediate future unless we have companies out there aggressively pursuing new natural gas resources in Cook Inlet.”

Popp said Agrium’s temporary closure is a symptom of the inlet’s aging gas fields, but does not mean there is a shortage of gas on the immediate horizon.

“We still have a lot of gas in the ground,” Popp said, adding that there were 1.6 trillion cubic feet of proven gas reserves in Cook Inlet as of Jan. 1 this year. “That covers a number of years worth of supply. The problem is getting gas out of ground fast enough and in volume sufficient enough to meet daily demand.”

For the situation to improve, something major would have to happen, and that could come in a variety of packages:

· Agrium’s Blue Sky project. Agrium has been awarded $7 million in government grants to conduct a feasibility study on building a plant that would use “clean” coal technology. Coal would be used to generate natural gas and electricity. If successful, the Nikiski plant’s continued operation would no longer be dependent on the negotiation of year-to-year gas supply contacts.

· Increased investment in Cook Inlet oil and gas exploration. This could come in the form of upgrades to inlet platforms, new drilling efforts to deeper depths and exploration for harder-to-find gas pockets from companies already operating in Cook Inlet and new players in the market.

Newcomer Escopeta Oil, with its efforts to bring a jack-up rig to Cook Inlet, is part of the equation, Popp said, and Chevron (formerly Unocal) has been making “strong public hints that they are ready to go through a major reinvestment in the Cook Inlet area that will include new drilling programs looking for new reserves of oil and gas.”

· Gas storage. Companies such as Marathon and Chevron hope that pumping excess natural gas into the ground when demand is low will help them produce a steady flow of gas to meet the increased demand during peak winter months.

“That’s something we haven’t needed in the past but will need more of in the future,” Popp said.

· Liquefied natural gas imports. This one is only a blip on the radar screen of possible projects that could enhance Cook Inlet’s natural gas situation at this point. But Popp said ConocoPhillips has mentioned the idea of shipping LNG in from foreign markets as a way to bridge a gap in supply until a natural gas pipeline from the North Slope is built.

· Speaking of projects that are on the distant horizon  the North Slope gas pipeline tops the list, yet also has the potential to be the most effective tonic to cure what ails Cook Inlet’s sagging gas supplies. But not only does a pipeline have to be built, some mechanism for getting gas to Cook Inlet must materialize, as well.